More taxes proposed for pvt unis, English medium schools, trade orgs, NGOs

The Income Tax Bill 2023, which was placed in Parliament on Thursday, has made changes in the definition of a company, bringing in English medium schools and private universities, trade organisations and NGOs under the corporate tax purview.

According to the new definition, cooperative associations, micro-credit organisations, government organisations, local authorities and autonomous organisations would also be considered as a company, finance ministry and revenue board officials said.

Once the proposed tax law is passed in Parliament, these newly defined companies, which are currently paying taxes at lower rates, will have to pay a 27.5% tax if they have income. But they must pay a 0.60% turnover tax in case of having no income.

In addition, these organisations will have to deduct 10% tax at source, otherwise, they will be subject to a penalty of 20% source tax for violation of the law.

The draft law, however, offers special facilities for three professional organisations – the Institute of Chartered Accountants of Bangladesh (ICAB), the Institute of Cost and Management Accountants of Bangladesh (ICMAB), and the Institute of Chartered Secretariate of (ICSB), said sources at the NBR.

Despite being professional organisations, these three organisations will have to pay only a 10% tax on their income from savings and other deposits and they will enjoy tax waivers as per the sixth schedule of the draft income tax law.

Currently, as per the Income Tax Statutory Regulatory Order (SRO), private universities pay a 15% tax on income. English medium schools pay taxes at the rate of an individual taxpayer, which is up to 25%.

According to sources, all educational institutes have good incomes from Fixed Deposit Receipts (FDRs). According to the proposed law, they will have to pay 20% tax at the source of interest income from such deposits instead of the current rate of 10%.

According to the draft tax law, the liaison, representative or branch office of a foreign organisation, any permanent establishment of a foreign entity or person, any association or organisation registered by or under the laws of any country and established outside of Bangladesh, banks, insurance and financial institutions, firms, any association of persons, joint venture or association of persons or any foreign entity will be considered as a company.

Snehasish Barua, an income tax analyst, told TBS that it would be the biggest achievement of the law if taxes can be realised from foreign companies' liaison offices in Bangladesh. 

He also mentioned that foreign companies' liaison offices are currently treated as companies but most of them managed to stay out of the tax net using the tax facility given to apparel sector liaison offices as a shield.

Local authorities – city corporations, Rajuk, the Chittagong Development Authority and other authorities – are currently paying 25% tax. Under the new law, it will be higher as per corporate tax rates, Snehasish explained.

The National Board of Revenue (NBR) is planning to implement the new law from 1 July, if it is passed in Parliament.

Company taxpayers have to comply with many rules of the law which do not apply to individual taxpayers such as deduction of tax at source and filing of income statements and chartered accountant firm-certified audited financial reports.

A company or firm having an annual turnover of more than Tk2 crore will have to submit a copy of the income statement with an audited financial report certified by a chartered accountant firm and the certificate of incorporation with the income tax return.

The three chartered professional institutes mentioned above will pay only 10% source tax on their income from fixed deposits and savings while educational institutes have to pay 20% source tax from such income, a finance ministry official told TBS.

Trade association leaders alleged that the NBR has hired some accounting professionals as consultants for the draft income tax law. Due to their advocacy, the NBR officials allowed those three organisations to get such benefits.

In this regard, former NBR member (Income Tax Policy) Syed Aminul Karim said, "The new law has tried to explain many things in short. But these matters require elaborate clarification.

"Each definition chapter needs a detailed explanation. For example, it would never make sense to treat an educational institution as a business company. Their tax rates should never be the same."

What trade leaders and experts say

The Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) President Jashim Uddin told The Business Standard, "Next Sunday, we will hold a meeting with members of our own committee to briefly analyse the draft income tax law. It will not be justified to treat educational institutions, trade bodies and NGOs as companies."

Dhaka Chamber of Commerce and Industry (DCCI) President Barrister Sameer Sattar said, "Educational institutes should not be treated on the same footing as profitable private limited companies. The government should extend support to all educational institutions as much as possible."

According to senior NBR officials, there were some misconceptions about company definition among income tax law and company law. The NBR suggested changes in the definition in September 2022 and the draft law incorporated that.

Mohammad Abdur Razzaque, an economist and the chairman of the Research and Policy Integration for Development (RAPID), also said educational institutions or any nonprofit organisations should in no way be treated as business companies.

Finance Minister AHM Mustafa Kamal placed the draft bill in Parliament on 8 June and it was sent to the respective scrutiny committee for further examination.

The committee was asked to submit its report within five working days.

The proposed law brings several changes including curbing the discretionary powers of the income tax officer. In addition, there are proposals to increase the tax rate in some cases.

The Income Tax Ordinance 1984 is going to be replaced by the new Income Tax Bill when it is passed in Parliament.